* Peugeot says first GM alliance savings seen in H1
* Cash burn to at least halve from 3 bln euros last year
* Seeks labour concessions on pay, working time
* Further plant cuts may be needed - CEO
* Shares up as much as 10 pct at highest in over a year
(Updates with comments, VW comparisons, details)
By Laurence Frost and Andreas Cremer
PARIS, July 31 PSA Peugeot Citroen
said it will consume less cash than expected in 2013, as
spending cuts and a year-old alliance with General Motors
begin to pay off.
The struggling automaker vowed to reduce cash burn "at least
by half" from last year's 3 billion euros ($4 billion),
undercutting its earlier 1.5 billion goal before restructuring.
Peugeot shares surged more than 10 percent to their highest
in more than a year on the upgraded outlook, as the company said
cost-cutting had helped contain losses in the first half.
The turnaround plan is "going more quickly than expected",
Chief Financial Officer Jean-Baptiste de Chatillon said as he
unveiled the results. "But we've still got a lot of work to do."
As if to underline the remaining challenges, German rival
Volkswagen published higher-than-expected quarterly
operating profit of 3.44 billion euros.
Peugeot, a distant European second to VW by sales, is the
worst casualty of the region's five-year auto slump. After a 5
billion euro net loss in 2012, the Paris-based carmaker gave up
more ground in the first half, posting a 13.3 percent decline in
European sales - twice the market contraction.
Chief Executive Philippe Varin is fighting back with
spending cuts, joint vehicle programmes with GM and the
elimination of 11,200 jobs over two years.
"The GM alliance is in the execution phase with the first
purchasing savings (achieved) in the first half," Varin told
Peugeot's operating loss widened to 65 million euros from 51
million before one-off gains and charges, on a 3.8 percent
revenue decline to 27.71 billion. But it reined in cash
consumption to 51 million euros from 449 million a year earlier.
Capital expenditure and research and development were
slashed by 764 million euros to 1.23 billion.
The spending squeeze is helping Peugeot's short-term
profitability but hurting the product pipeline that will drive
future earnings. By comparison, VW's research and development
budget for the half was 7.4 billion euros.
The German group's profit gain, announced late on Tuesday,
began to show the payback from an estimated $70 billion
investment in a new modular vehicle architecture used by group
brands from no-frills Skoda to premium Audi.
Peugeot "needs a partner to reach critical scale and share
technologies," Varin said in a newspaper interview published on
Wednesday. "It's an indispensible condition for developing our
brands with globally attractive cars."
Varin noted deepening cooperation with 7 percent shareholder
GM and a "very good dynamic" with Chinese partner Dongfeng
. Sources told Reuters last month that the founding
Peugeot family had offered to give up control in a capital
increase cementing closer ties with GM or Dongfeng.
While no capital increase is being prepared, Varin said "the
question may one day arise of how to finance future growth".
Chinese sales surged 33 percent to 278,000 vehicles in the
first half, Peugeot said, contributing to a 100 million euro
dividend from the Dongfeng venture.
Cash flow - which came to 203 million euros before
restructuring - was helped by such dividends and other gains
that will not be repeated in the second half. The net loss
narrowed to 428 million euros from 818 million.
The carmaker's shares were 7.7 percent higher at 9.70 euros
by 1258 GMT, as hedge funds bought up the heavily shorted stock
to cover negative bets on Peugeot's fate.
The results announcement came a day after Peugeot won EU
clearance for a 7 billion euro state-backed debt rescue granted
last year to its Banque PSA car loans arm.
Varin declined to answer questions about talks with Banco
Santander. The two companies are discussing a finance
venture that could replace the guarantee and bring Peugeot more
freedom from government interference, people with knowledge of
the matter said last week.
Peugeot did confirm it would seek concessions on pay and
working time when French union talks resume in September.
The company, already closing its Aulnay plant near Paris and
downsizing another in Rennes, will likely to need further cuts
to increase capacity utilisation, Varin added.
"We're not relying on a very significant improvement in the
European market ... We have done in the past some shrinking of
capacities on some sites ... So we know how to do it," he said.
The auto division fared slightly better in January-June as a
series of model launches helped trim the operating loss 29
percent to 510 million euros, despite a 7.5 percent revenue
slide. Group net debt rose to 3.32 billion euros at June 30 from
3.15 billion six months earlier.
($1 = 0.7547 euros)
(Additional reporting by Gilles Guillaume and Blaise Robinson;
Editing by Christian Plumb and David Holmes)